Stacey avoids bankruptcy as more tip over the edge

Stacey Barrass was within months of personal bankruptcy after a relationship break-up left her with about $100,000 in debts.

The single mother of three boys, the oldest aged 16, says she had, and still has, a large mortgage and had to take drastic measures in order not to lose her home.

Barrass, 47, received some budgeting advice and tips on how to negotiate with her bank from a neighbour, who is a friend and also a financial adviser.

"I negotiated with the bank to consolidate my credit card debts into the home loan and under the bank's financial hardship provisions and I was able to extend the loan term and reduce the repayments," Barrass says.

She also cut-back on spending dramatically by not eating out, forgoing holidays and not going to the movies.

"I needed to take drastic action as I was only two months months away from bankruptcy," Barrass says.

While Barrass, from Melbourne, now owns a cleaning business and has managed to turn her finances around, more Australians are finding it difficult to keep the wolf from the door.

Bankruptcies increase

Figures from credit reporting agency Illion (the former Dun & Bradstreet) suggest the number of personal bankruptcies rose by 4 per cent nationally, for the year to June 30, 2018, compared with the previous financial year.

"The lights are flashing red across several regions in terms of rising consumer stress levels," he says.

Across Australia there were more than 32,000 bankruptcies – the fourth consecutive financial year of increases.

There is a big variation in the bankruptcy numbers across the country.

Western Australia and the Northern Territory saw the biggest rises in bankruptcies of more than 10 per cent, while Queensland recorded the nation’s highest number of personal bankruptcies during the 12-month period as these states continue to feel the fallout from the end of the mining boom.

NSW had an increase of 7.6 per cent, while Victoria was down by 2.2 per cent.

There can be all sorts of reasons that people get into financial strife – relationship breakdowns, unemployment or excessive use of credit – but experts are also pointing to the downturn in property prices as another factor.

Property price declines

Sydney's property boom has seen one in eight low and middle-income earners across the city in housing stress, the highest proportion in Australia.

"Victoria is in top spot due to strong population growth, driving broad construction activity, especially homes," the report says.

However, the drop in the number of personal bankruptcies in Victoria may not continue, says Bligh.

"Sydney's declining property market and the significant rise in personal bankruptcies could be mirrored in Melbourne in the year to June 30, 2019, as its property market is showing signs of following the same downwards trajectory," he says.

Port Macquarie on the NSW north coast tops the list in that state with 82 bankruptcies, an increase of more than 46 per cent on the previous financial year.

Pakenham, 56 kilometres south-east of Melbourne's CBD, recorded 96 bankruptcies during the financial year, the highest in Victoria.

Bankruptcy has long-term consequences

Personal insolvency includes bankruptcies, but also includes debt agreements and personal insolvency agreements.

Bankruptcies, debt agreements and personal insolvency agreements appear on the credit records for five years.

When you become bankrupt, your ownership of property shifts to a trustee. The trustee makes the bankrupt's unprotected property available to creditors.

Bankrupts cannot be a director of a company, have to get the permission from the trustee to travel overseas and may not be able to be employed in occupations that have rules concerning being a "fit and proper" person.

Bankruptcy and personal insolvency agreements are recorded on the National Personal Insolvency Index for life, while debt agreements are on the Index for five years.

Bankruptcy lasts for three years and one day after which time there are no restrictions.

Debt Agreements involve proposing a repayment schedule to your creditors and usually last for up to five years.

Andew Aravanis, the founder of bankruptcy trustee Aravanis, says for those who get behind on repayments, the first step is to talk to their lender or lenders.

Credit providers have hardship provisions under which the loans can be restructured. The provisions are for temporary circumstances, such as unemployment and illness, and last for six months after which time the borrower needs to re-apply.

Illion's Simon Bligh encourages anyone who is experiencing financial hardship to seek help from a financial counsellor.